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All you need to know about Professional Tax

  • Highlights

  • Professional tax in India is levied on your monthly income

  • Employers deducts professional tax every month

  • Professionals can make their own professional tax payment

  • The amount varies across professional tax slabs

What is Professional Tax?

Drawing a regular income in the form of a salary or as professional fees for your services requires you to pay a professional tax. Every professional has to pay this tax to their respective state governments based on their earnings. However, the percentage of deduction differs along states in India and your final professional tax amount is likely to differ based on this.

Here is an in-depth look at professional tax.

Professional tax in India

If you are a salaried employee, take a closer look at your salary slip or just enquire with the HR personnel in your organisation. You’ll learn that your employer deducts a small amount every month based on your income month along with other regular deductions. This amount accounts for your professional tax, which your employer pays to the state government on your behalf.

In case you are a chartered accountant, lawyer, doctor, or any other practicing professional in India then you will have to pay professional tax to the state government of the place in India where you have your practice. The amount will vary as per your earnings.

Difference between professional tax and TDS

Before understanding the nuances of professional tax independently, it is important to distinguish it from another commonly mistaken parameter, TDS.

TDS in India
Tax Deducted at Source (TDS) is the amount that is deducted from your earning by your employer or by the person who is making payments to you. This deduction is carried out based on a pre-determined TDS slab. Your income, on which TDS is applicable, can come from your investment interest earnings, savings, salary or salaries, rent payments, professional fees, etc.

The company or person making the payment has the right to deduct your TDS based on the slab corresponding to your income. So, this deduction acts like tax that you have paid in advance, which allows you to furnish the necessary documents of deduction at the time of your ITR filing. This will allow the tax department of India to know on which of your earnings you have already paid tax. Based on this evaluation you will either be exempt from paying a tax or will have to pay TDS on earnings that have not yet been taxed.

Who should pay professional tax?

As mentioned earlier, if you are earning in India then you are liable to pay professional tax. If you are employed, your employer makes a professional tax payment to the state government. If you are a professional with your own practice, you need to make the professional tax payment on your own. The amount to be deducted depends on the slabs set out by every Indian state individually. However, the total amount of professional tax that can be collected from you can never exceed Rs.2,500.

What is the professional tax limit?

In 1949, when professional tax was first introduced in India, the maximum amount was set at Rs.250. This was increased to Rs.2,500 in 1988, and since then this amount has been kept unchanged. So, as a salaried individual or a professional drawing regular income you, your employer or the respective party from where your income comes can pay professional tax.

No matter who is making the professional tax payment, the rules for registering for it remain the same. Professional tax payment depends on the nature of your work and the slab based on your income.

Why is it different for different people?

Based on the way in which you earn a regular income, your professional tax obligations alter. The tax also varies from one state to another, with some Indian states and union territories not charging any professional tax. So, the amount to be deducted from your income as professional tax is determined by two things:

a. Your earnings and the threshold slab it falls into and
b. The state’s professional tax slab

Professional tax for salaried individuals

Your monthly gross income corresponding to the income slabs put forward by the state in which you are employed determines the amount you have to pay as professional tax. So, if your gross income every month is Rs.30,000 and you are working in Maharashtra then you are liable to pay Rs.200 every month except February. You will be required to pay Rs.300 only in February. This amount is derived based on the professional tax slab declared by the State. This amount is usually deducted by your employer from your salary.

Professional tax for self-employed individuals

If you are not employed with an organisation as a salaried individual then you are liable to make professional tax payment on your own. It is your responsibility to submit your taxes to the state where you work without fail. According to the Professions, Trades, Callings and Employment Act 2000, all professionals who are earning their income by carrying out their own practice in a chosen specified field, such as a doctor, chartered accountant, medial professional, technology expert, lawyer, or more are entitled to pay professional tax. Freelance professionals are also counted within this category.

All professionals, including freelancers, need to apply for the professional tax registration number. You can download this form from your state’s professional tax website based on the specialised work you do. Once you have a professional tax registration number, you can use it to pay your professional tax now and in the future. Some states offer a rebate to you in case you pay advance professional tax based on prospective income in a lump sum. Thus, knowing the state professional tax slabs is very important.

Professional tax for companies

Any company doing business in India is liable to pay a lump sum professional tax based on the deduction it makes on employee earnings. Apart from this liability, as the owner of your firm, you are supposed to pay a professional tax for your firm based on your income earnings too. You can pay both these tax liabilities by registering online using forms available on your state government professional tax website.

Pay online:
If your company is located in Maharashtra for example, you will first need to register on the government of Maharashtra tax website to seek a registration certificate. Once registered and verified, you will receive an enrolment certificate. Both these certificates allow you to officially deduct professional tax for your employees and submit them at actuals to the state government of Maharashtra.

Pay offline:
Further you can visit your nearest district sales tax office to clarify details about your firm’s professional tax obligations and personally fill up forms to initiate the process.

What happens if you don’t pay professional tax?

As specified under Section 5(6) of the Profession Tax Act, the penalty you will incur in case you are found providing wrong information when applying for an enrolment certificate or a registration certificate is three times the amount of your total tax obligation. Thus, it is imperative to be thorough with the process of application so that you can make neat professional tax transactions all along.

How is professional tax calculated on salary?

Professional tax is calculated every month based on your gross salary for that month. Say your CTC is Rs.50,000 per month, and after deduction of your EPF, gratuity, and leave deduction or payment towards any loan you may have taken from the company in the past, your gross salary comes to Rs.40,000. The professional tax will be levied on this amount of Rs.40,000. So, each month based on the increase or decrease of your gross salary, your professional tax slab will also differ and accordingly, your employer will deduct this tax.

In which states is professional tax not applicable?

Not all Indian states levy professional tax.

The states and union territories where professional tax is not applicable are:
- New Delhi
- Arunachal Pradesh
- Chandigarh
- Chhattisgarh
- Dadra & Nagar Haveli
- Daman & Diu
- Haryana
- Lakshadweep
- Jammu & Kashmir
- Rajasthan
- Uttaranchal
- Uttar Pradesh

The states that impose professional tax are:
- Karnataka
- Bihar
- West Bengal
- Andhra Pradesh
- Telangana
- Maharashtra
- Tamil Nadu
- Gujarat
- Assam
- Kerala
- Meghalaya
- Odisha
- Tripura
- Madhya Pradesh
- Sikkim
- Goa

Where should you show professional tax in your ITR?

If you are a salaried, then you need not worry about declaring professional tax in your ITR. Your employer will do the needful. The only thing you need to check when you are handed Form 16 is that under ‘income from salary’, the amount declared is your gross salary minus the exemptions and professional tax. Alongside that, also check that the amount before deduction and all other details are mentioned under Chapter VIA in Part B of Form 16. Tallying these variables will allow you to raise questions regarding discrepancies, if any.

If you are filing an ITR as a professional or for your company then based on the ITR Form you are filling, you will have to declare your gross income. Then based on all other parameters such as rent, investments, etc., you will also quote the professional tax liability for the year. In case as a company you have been making monthly or quarterly professional tax payments, then furnish eligible documents as proof and just mention the amount in your ITR.

When is professional tax deducted?

If you are a salaried individual then as mentioned under Article 276(2) of the Indian Constitution, your professional tax will be deducted by your employer based on your salary slab from your gross income on a monthly basis and it will then be remitted to the state.

However, as a professional or as the owner of a Private Limited or a Limited Liability Partnership company, or as a partner in a partnership firm, or even as a sole proprietor for your company, you will have to make professional tax payments appropriate for your category slab in the state where you work or where your business is based. The only exemption is given to senior citizens, people who have disabilities, or are parents to disabled, or parents of a mentally challenged child.

Can professional tax be paid online?

Professional tax payments can be done online by visiting the professional tax or sales tax website of the state where you work or have your business in. In fact, in case you are making monthly payments towards your professional tax, then e-filing becomes a mandatory option. For example, if you are filing professional tax in Maharashtra then you can do the same in seconds on the Mahavat website.

You will have to make payments and file your returns monthly in case your tax liability crosses Rs.50,000 in a year. You are allowed to pay for your professional tax until the last day of the subsequent month. However, you can file your returns only once at the end of the financial year in March in case your total liability is less than Rs.50,000.

Take a look at the steps via which you can easily pay your professional tax online in Maharashtra.

- First get on the Mahavat website and then select the e-payment link.
- Login to the portal using your TIN Number and select e-payment.
- On successful login MTR Form No. 6 will be displayed. It will contain all your details, and TIN by default.
- Next select the type of e-payment, the period for payment, the amount, the location under which you are registered. Fill every detail with precision and accuracy as you will not be able to change any detail once submitted.
- In case you are paying on behalf your employees then you should select Form ID ‘VIII’ for the professional tax payment. In case this does not apply for you then you can simply select the ‘Other’ option and then choose the appropriate remark from the drop-down list.
- Once you are ready with the form then click to submit it. The Government Request Number or GRN will be immediately generated. You can choose ‘Pay’ and complete the professional tax payment transaction.
- Save the receipt that will appear on successful payment as a proof that you have already made your professional tax payment to the Maharashtra government.

Even if you are filing your professional tax in any other state, the basic steps to make your professional tax payments will be the same. Just follow this map and pay your professional tax online using the state slabs and mandates.

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